Sep 17, 2015

Florida’s Housing Recovery

Once the poster child for the housing bust, Florida’s housing market has come roaring back with so much strength that some are wondering if another bubble is forming. We took a look at some of the post-bust trends in order to examine whether things may be different this time around. First, the financial quality of today’s homebuyers is much better. Many buyers are paying all-cash while the bubble was driven by speculation from over-leveraged buyers. Also, there are strong fundamentals driving prices higher, i.e. robust job growth, limited supply, low mortgage rates, significant foreign demand, and positive in-migration trends. The Meyers Index, which is a proprietary reading generated from housing, economic and demographic data, shows that Florida is the second-best performing state in the U.S.

MEYERS INDEX: TOP RANKING STATESSource: Zonda

786 Texas

694 Florida

679 California

The “Sunshine State” was amongst the hardest-hit states in the country during the housing bust. Now, six years later, the jobless rate has been cut by more than half while home prices have rebounded back to near pre-bust levels in many areas. The service sectors have led the way in terms of job creation while tourism has been a real boon for the state over the past several years and will continue to contribute to economic growth this year. According to a recent report by VISIT FLORIDA, Florida is on track for another record-breaking year for tourism in 2015. During the first quarter, Florida welcomed more visitors than any other quarter in the state’s history.

UNEMPLOYMENT RATES FOR FLORIDA METRO AREAS

MSA

June-15

Peak

Fort Myers

5.2%

13.1%

Jacksonville

5.4%

11.2%

Miami

5.6%

11.3%

Naples

5.2%

13.0%

Sarasota

5.2%

12.2%

Orlando

5.2%

11.6%

Tampa

5.3%

11.7%

Source: BLS; Zonda Market Reports

New home prices have also recovered better than existing home prices since the downturn. According to data from Zonda, median single-family detached existing home prices are still about 11% below their 2006 peak while median single-family detached new home prices have returned to their pre-recession highs. The lack of new home inventory, higher building costs, a shortage in skilled labor and the absence of entry-level new home product have resulted in rising new home prices. Existing home prices have been depressed by a glut of foreclosures and zombie properties. Because Florida has a judicial foreclosure process, it takes an average of about two years to complete a foreclosure, which has kept a constant flow of distressed properties on the market that have been dragging down median resale prices. Roughly 48% of all existing home closings over the past 12 months were priced $160,000 or less. By comparison, only 12% of new home closings were priced under $160,000 for that same period.

Despite historically low mortgage rates and increased demand, residential construction activity remains lackluster. Since the housing bust, builders have been extremely cautious and this has led to both a limited inventory of new homes on the market and higher median new home prices. For the entire state, building permits are still running significantly below their 43-year historic average and are just about one-third of what they were at their peak in 2005. Through the first six months of the year, total permit activity is up compared to the first half of last year in all of the Florida MSA’s that Zonda covers. By metro area, Orlando has remained the steadiest with building permit activity only down 13% compared to their 2007 highs. Sarasota has experienced the biggest pullback with permits down roughly 80% from the 2006 peak. Fort Meyers has rebounded the most since bottoming out, with total building permit activity currently back up almost 800% from their 2009 lows.

Florida’s continued success will be driven by its steady stream of business from tourism, international trade, and construction. The latest concern is that a stronger dollar from China’s recent devaluation of the yuan and the financial turmoil in Europe caused by Greece could hurt both international trade and tourism. Home prices in Florida have also risen to the point where investors are no longer finding big value in areas like Miami and Orlando. However, these threats to the ongoing recovery are not likely to have a big impact in the near term. We project that steady progress for Florida’s economy and housing market should continue through the end of this year.